Multinationals' Profit Response to Tax Differentials: Effect Size and Shifting Channels

37 Pages Posted: 31 Jul 2013

See all articles by Jost Heckemeyer

Jost Heckemeyer

ZEW – Leibniz Centre for European Economic Research

Michael Overesch

Universität zu Köln

Date Written: July 30, 2013

Abstract

This paper provides a quantitative review of the empirical literature on profit-shifting behavior of multinational firms. We synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for misspecification biases by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Our results suggest that transfer pricing and licensing are the dominant profit-shifting channel.

Keywords: Profit Shifting, Multinational Firm, Corporate Income Tax, Meta-Analysis

JEL Classification: H25, H26, H32

Suggested Citation

Heckemeyer, Jost and Overesch, Michael, Multinationals' Profit Response to Tax Differentials: Effect Size and Shifting Channels (July 30, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-045. Available at SSRN: https://ssrn.com/abstract=2303679 or http://dx.doi.org/10.2139/ssrn.2303679

Jost Heckemeyer (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Michael Overesch

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

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